VZCZCXRO7116
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1479/01 1511300
ZNR UUUUU ZZH
R 301300Z MAY 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1953
INFO RUEHCG/AMCONSUL CHENNAI 2969
RUEHCI/AMCONSUL KOLKATA 2261
RUEHLH/AMCONSUL LAHORE 4433
RUEHBI/AMCONSUL MUMBAI 2075
RUEHPW/AMCONSUL PESHAWAR 4869
RUEHIL/AMEMBASSY ISLAMABAD 4943
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 04 NEW DELHI 001479 
 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
STATE FOR SCA/INS AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE 
USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER 
EEB/CIP DAS GROSS, FSAEED, MSELINGER 
USTR FOR CATHERINE HINCKLEY 
 
E.O. 12958: N/A 
TAGS: EAGR EFIN EINV EPET ETRD SENV IN ECPS BEXP
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY 
26-30, 2008 
 
 
NEW DELHI 00001479  001.2 OF 004 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of May 26-30, 2008, including the following 
items: 
 
-- INDIAN GOVERNMENT RELAXES OVERSEAS BORROWING NORMS 
-- RETAIL REPORT DRAWS VARIED RESPONSES 
-- BANGALORE AIRPORT OPENS 
-- SLIGHT PROGRESS ON INDO-EU FTA 
-- AHLUWALIA IN RACE FOR THE POST OF RBI GOVERNOR 
-- FINANCE MINISTER PRESENTS CSR AWARDS 
-- REPORT PROJECTS 528 MILLION CELLULAR SUBSCIBERS BY 2010 
-- INDIA BALKS OVER OFFER OF LIECHTENSTEIN BANK DATA 
-- BANGALORE HOTEL ROOM RATES DECLINE 
 
 
 
INDIAN GOVERNMENT RELAXES OVERSEAS BORROWING NORMS 
---------------------------------- 
¶2. (U) The Finance Ministry at a May 29 high-level committee meeting 
on External Commercial Borrowings (ECBs), chaired by Finance 
Secretary Subbarao and attended by other Finance Ministry and 
Reserve Bank of India (RBI) officials, agreed to ease the overseas 
borrowing norms for companies. The liberalized guidelines will allow 
infrastructure companies to bring into India $100 million in foreign 
financing which should boost investment in airports, ports, and the 
power sector (companies still face no limit on foreign borrowing 
that is used for investment abroad).  According to the 11th five 
year plan (2007-12), India's infrastructure sector requires $500 
billion worth of investment, of which $30 billion is expected to 
come through the ECB route.  For other corporates, the ceiling on 
ECBs to fund rupee expenditure has been raised to $50 million from 
the current $20 million. Under the approval route, a borrower 
requires prior approval of RBI to borrow for permissible end-uses. 
The government has also increased the interest rate ceiling over six 
month London Interbank Offer Rate (LIBOR), making it easier for 
small and medium firms to access the foreign debt market. 
¶3. (U) The government has also enhanced the investment limits for 
Foreign Institutional Investors (FIIs-registered with the Securities 
and Exchange Board of India) in government securities to $5 billion 
from the current $3.2 billion and doubled the ownership in corporate 
bonds to $3 billion in an attempt to strengthen the debt market. The 
relaxation in the ECB rules and the easing of FII rules will help 
bring in higher capital flows, which have declined over the past 
eight months, both because of ECB restrictions imposed in August 
2007 as well as more cautious global capital market sentiment 
towards emerging markets - especially those that, like India, have 
seen strong returns and become more richly valued in the past few 
years. 
 
RETAIL REPORT DRAWS VARIED RESPONSES 
---------- 
 
¶4. (SBU) The Indian Council for Research on International Economic 
Relations' (ICRIER) report on the impact of organized retail has 
finally been released, approximately seven months after it was 
originally due.  The report's early findings were laid out by 
business daily The Mint in December 2007, and the findings of the 
final report are much the same.  [Comment:  A source at ICRIER told 
Econoff in November 2007 that the report had been completed on time 
and was ready for release in October 2007 but that the Ministry of 
Commerce & Industry had asked ICRIER to hold off on its release.] 
 
¶5. (U) The report indicates that while organized retail will 
definitely cut into the business of mom-and-pop shops in the near 
term, the impact on profits for small traders will diminish over 
time.  The report further projects that even with dramatic growth in 
the organized sector, unorganized retailers will retain 84 percent 
of the market share even in 2013, down from 95 to 97 percent today. 
The report's authors also dubbed unorganized retail "a major 
 
NEW DELHI 00001479  002.2 OF 004 
 
 
bottleneck to raising productivity in both agriculture and industry" 
and encouraged the GOI to reduce licensing requirements to encourage 
the growth of organized retail.  Media responses have been varied, 
with some sources hailing ICRIER's advice as rational and 
progressive, while others cite it as further proof of the need to 
protect small traders by denying entry to organized retailers. 
 
 
BANGALORE AIRPORT OPENS 
----------------------- 
 
¶6. (U) Bangalore International Airport Limited (BIAL) began 
operations at midnight between May 23 and May 24 with a low key 
inaugural function.  Bangalore High Court dismissed several public 
interest lawsuits brought by prominent Bangalore citizens such as 
Kiran Mazumdar Shaw, CEO of Biocon, and Mohandas Pai, Director of 
Infosys, to keep the old Hindustan Aeronautics Limited airport 
operational.  Vinay Rao, Vice President, Infosys, told post it takes 
over two hours to reach the airport from the company headquarters 
requiring the use of a helicopter to cut travel times.  Apart from 
high costs, the levy of a user development fee of a little under $20 
caused considerable heart burn; BIAL management decided to waive the 
fee for three months for domestic travelers following protests. 
 
¶7. (U) Manish Kaushal, Manager of Aviation Contracts, told Post that 
vendors were still in the process of setting up operations.  He 
expected airport operations to settle down in two weeks.  Sebastian 
Krugmann, Assistant Manager, Global Ground, providers of ground 
support services, told post that some of the workers were getting 
used to the equipment and procedures.  He said complaints of delayed 
baggage arrival and fueling was normal in the first few days of any 
airport.  He pointed to the problems at Heathrow's new T5 terminal 
as an example. 
 
 
SLIGHT PROGRESS ON INDO-EU FTA 
--------------------------------------------- -- 
 
¶8. (SBU) European Commission Trade Counselor Bermejo has reported 
some progress in Indo-EU FTA talks.  Two weeks ago the GOI submitted 
it list, originally promised for November 2007, of the 90 percent of 
European goods whose import tariffs will be zeroed out by India in 
the seven years following the signing of an FTA.  The next round of 
negotiations is tentatively scheduled for the second week of July, 
at which time the GOI may propose the time sequencing that they are 
seeking for lowering tariffs. 
 
AHLUWALIA IN RACE FOR THE POST OF RBI GOVERNOR 
----------------------------------------- 
 
¶9. (U) Media reported that according to a Ministry of Finance 
official, Montek Singh Ahluwalia, Deputy Chairman of the Planning 
Commission may be a strong contender for the post of Governor of the 
Reserve Bank of India (RBI). The current Governor Reddy's term comes 
to an end in September 2008. Other potential candidates being 
considered are Rakesh Mohan, currently RBI's Deputy Governor, 
Finance Secretary Subba Rao and Adarsh Kishore, India's Executive 
Director at the IMF in Washington, with the final decision taken by 
the Prime Minister and the Finance Minister.  If the BJP-led 
government comes to power (elections are due next May) Ahluwalia may 
lose his present job at the Planning Commission as he is a political 
appointee of the present UPA government.  RBI governors have a fixed 
term of at least three years regardless of change in government; in 
the case of current Governor Y.B. Reddy, the term was extended to 
five years. 
 
¶10. (U) Ahluwalia is extremely close to PM Singh. He served as 
Singh's secretary in the Department of Economic Affairs, Ministry of 
Finance, and later as the Finance Secretary.  He was instrumental in 
 
NEW DELHI 00001479  003.2 OF 004 
 
 
pushing through the reforms process initiated in 1991 by then 
Finance Minister Singh.  As Deputy Chairman of India's Planning 
Commission, he is also the core convener of the US-India Economic 
Dialogue.  Importantly, he has recently been a strong voice for 
financial market reform, including endorsing the Rajan Committee 
recommendations.  Mohan came to RBI as Deputy Governor in late 2002 
but, before finishing his three-year term, transferred to the 
position of Secretary of the Department of Economic Affairs at the 
Finance Ministry, only to come back to the central bank after eight 
months. He is considered a good economist and is very familiar with 
the functioning of the central bank. The biggest challenge for the 
new governor will be controlling inflation, currently running at 
7.8%, above the RBI's target of 5%. GDP growth is also slowing, 
following tightening of monetary policy through a series of hikes of 
banks' cash reserve ratio. 
 
¶11. (SBU) Numerous contacts in private sector financial firms, 
foreign and domestic, academics and the press have noted the need 
for fresh blood at RBI to enable India's financial sector reform 
process to move faster.  RBI is widely viewed as a key obstacle in 
almost every facet of financial market development.  From a policy 
perspective, Rakesh Mohan is considered to be an ideological heir to 
Y.B. Reddy.  Most analysts and market participants in Mumbai feel 
that Mohan would continue the slow, cautious path of Reddy.  The 
Economic Research team at Goldman Sachs India believes that a dark 
horse candidate may yet be the final choice of the government, much 
like C.B. Bhave was chosen to head the Securities and Exchange Board 
of India over several other more prominent candidates.  In this 
case, the Goldman Sachs analysts told Congenoffs that Kishore was 
still in the running. 
 
FINANCE MINISTER PRESENTS CSR AWARDS 
--------- 
 
¶12. (U) Finance Minister P. Chidambaram reinforced the importance of 
Corporate Social Responsibility (CSR) while presenting awards to six 
companies in a FICCI organized event in mid-May.  Both public and 
private sector companies were amongst the awardees.  He mentioned 
that inclusive growth could only be sustained through 'social 
conscience' which will lead to social responsibility.  He urged 
FICCI to publicize the Prime Minister's social charter for companies 
to bring about the genuine growth.  Industry representatives stated 
that their involvement in finding solutions to social issues helped 
their own businesses in the long run.  They agreed that CSR is 
gradually morphing from a mere philosophy to a strong business case 
for Indian industry and that many companies are committed to CSR. 
 
 
REPORT PROJECTS 528 MILLION TELECOM SUBSCIBERS BY 2010 
----------------------------- 
¶13. (U) A recent joint report released by business chamber ASSOCHAM 
and PricewaterhouseCoopers (PwC) indicates that India will continue 
to be the fastest-growing telecom market in the world.  The market 
is expected to comprise 528 million subscribers in 2010, of which 
480 million will be mobile and 48 million fixed-line.  This compares 
to the current figure of 310 million total customers and implies a 
compound annual growth rate of 28%.  Revenues from mobile services 
are expected to increase to $35 billion by 2010 versus $22 billion 
in FY 2007-08.  The Indian telecom market enjoys the advantage of 
being a predominantly pre-paid driven market, with the lowest rates 
in the world, some of the world's cheapest mobile handsets, and 
intense competition driven by the a large number of players.  The 
report adds that constant innovation in pricing of services and 
handsets were the two main factors contributing to growth.  Further, 
while urban markets are fast reaching saturation, operators are yet 
to work out successful business models to target rural India, as the 
cost of setting up mobile network in such places is high. 
 
 
 
NEW DELHI 00001479  004.2 OF 004 
 
 
INDIA BALKS OVER OFFER OF LIECHTENSTEIN BANK DATA 
------ 
 
¶14. (U) According to The Times of India, the German government has 
offered to share a list of account holders at Liechtenstein's LTG 
Bank with the GOI, but the GOI has not yet accepted the offer. 
Liechtenstein has long served as a tax haven for wealthy Indians, 
among many others, and some fear that its banks could also be used 
for terrorist financing or other illicit purposes.  The Times quotes 
a representative of Transparency International as saying, "It is 
alleged that this money belongs to rich and powerful politicians, 
industrialists and stock brokers, and that is [the reason for] the 
reluctance on the part of [the] government of India." 
 
 
BANGALORE HOTEL ROOM RATES DECLINE 
-------------------- 
 
¶15. (U) Hotel room rates softened over the last two months following 
a drop in the number of business travelers to Bangalore.  M.P. 
Purushothaman, President, South India Hotels and Restaurants 
Association and Empee Hotels, told post that occupancy in Bangalore 
had dropped from 85 percent to 78 percent over the last six months; 
consequently four and three star hotels dropped rates between 5 and 
10 percent.  Amala Pothen, Sales Director at Taj Hotels, told post 
that the group has not changed rates in Bangalore yet but did not 
rule out cuts with an estimated 2000 five star rooms coming online 
in the next two years. 
 
¶16. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD